[Companies Overcoming COVID-19] POSCO, Having Overcome a Major Hurdle, Seeks New Growth Next Year

Chairman Choi Jung-woo "Continued Performance Improvement in Second Half... Exploring New Businesses Next Year"
Turned Profitable Overcoming COVID-19 in One Quarter
Steel Sales Recovery... "Q4 Performance Will Improve Further"
Expecting Growth in EV Battery Material Business

[Asia Economy Reporter Hwang Yoon-joo] "Performance turned around in the third quarter, and we expect it to continue in the fourth quarter. Next year, we plan to seek new growth. We need to take on new challenges such as new business initiatives."

POSCO Chairman Choi Jeong-woo made these remarks on the morning of the 23rd during a meeting with an Asia Economy reporter. Despite the global steel industry mostly recording losses in the first quarter due to the unexpected challenge of COVID-19, POSCO managed a relatively strong performance with an operating profit of 458.1 billion KRW. However, in the second quarter, it was unable to avoid the impact and posted its first-ever quarterly loss (based on separate financial statements). Chairman Choi expressed his ambition to make the fourth quarter of this year and next year a period to explore new growth engines for the post-COVID era, having succeeded in returning to profitability after just one quarter.

◆Recovery in Steel Division Sales... Solid Group Performance Drives Turnaround

POSCO announced that its consolidated operating profit for the third quarter of this year increased by 297.5% from the previous quarter to 666.7 billion KRW. During the same period, sales rose 3.9% from the previous quarter to 14.2612 trillion KRW. On a separate basis, operating profit turned positive at 261.9 billion KRW. Sales increased by 11.7% from the previous quarter to 6.5779 trillion KRW.

In the steel division, production and sales volumes recovered to pre-COVID-19 levels, and profitability improved significantly due to reduced fixed costs. Despite rising iron ore prices, the decline in coal prices and extreme internal cost-cutting efforts drove the performance. In the global infrastructure sector, POSCO Construction continued strong performance in its building division, POSCO Energy expanded direct LNG imports, and POSCO Chemical saw increased sales of both anode and cathode materials, resulting in solid results.

After the restart of the No. 3 blast furnace at the Gwangyang Steelworks, order volumes recovered to last year's levels. POSCO's crude steel and product output increased by 1.7 million tons and 1.05 million tons respectively compared to the second quarter. Sales volume rose by 1.13 million tons to 8.89 million tons compared to the second quarter, driven by maximum order activities amid recovering demand industries. Notably, sales of high-margin products such as cold-rolled and coated steel, mainly for automotive use, increased significantly.

POSCO currently operates 38 entities worldwide, including 13 production subsidiaries and 25 processing subsidiaries across 13 countries such as China, India, Malaysia, the Philippines, Italy, and Turkey, with most plants operating at over 80% capacity.

Despite the challenging environment of soaring iron ore prices, POSCO has realized higher profitability compared to global competitors by applying operational technologies to expand the use of low-cost raw materials and reducing manufacturing costs through smart factories. While Japan's largest steelmaker Nippon Steel & Sumitomo Metal Corporation (NSSMC) and ArcelorMittal had operating profit margins of around 2.5% and 4% respectively earlier this year, POSCO maintained a margin in the 6% range, leading in profitability.

Additionally, through 16 raw material investment projects in 8 countries worldwide, POSCO secures stable raw material procurement, enhances purchasing negotiation power to reduce purchase prices, and gains investment returns. These raw material investments generate an annual profit increase effect of approximately 400 billion KRW.

◆Chairman Choi Jeong-woo, a 'Financial Expert' Strong in Crisis... Expanding Scope with New Businesses like Battery Materials and Energy

Choi Jung-woo, Chairman of POSCO

Chairman Choi played a major role in POSCO's rapid recovery from the COVID-19 shock. POSCO had already prepared an emergency management system from the second half of last year, anticipating an economic downturn due to the US-China trade dispute, and entered emergency management mode from April when the COVID-19 crisis emerged.

Chairman Choi is known to have emphasized the importance of financial soundness in unstable management environments like COVID-19. As a result, inventory reduction of products and raw materials improved the consolidated debt ratio to 71.8% in the third quarter, down 0.7 percentage points from the previous quarter. On a separate basis, cash and cash equivalents stood at 12.9048 trillion KRW, and on a consolidated basis at 17.8866 trillion KRW, increases of 840.3 billion KRW and 994.2 billion KRW respectively from the second quarter.

Inside and outside POSCO, Chairman Choi's selection of the 'mobility' sector as a new growth engine after taking office has been highly praised. As global industries reorganize around mobility, POSCO's newly entered electric vehicle battery materials business is also attracting attention. After his appointment, Chairman Choi established a new growth division and proactively set up a dedicated sales department for eco-friendly vehicles earlier this year. The sales portfolio is being reorganized and sales strengthened focusing on eco-friendly industries such as electric vehicles, wind and solar energy, and hydrogen vehicles.

Alongside this, efforts to secure new growth engines such as expanding anode and cathode material factories for battery materials are ongoing. As the electric vehicle market grows, the battery materials business is expected to grow rapidly alongside high-value-added steel products.

The fourth quarter is expected to see even greater performance improvement. This is because steel product sales continue to increase while the previously soaring iron ore prices are expected to stabilize.

Researcher Kwon Soon-woo of SK Securities analyzed, "From the fourth quarter, we expect an improvement in spreads due to the easing of high cost burdens caused by strong iron ore and coking coal prices and price increases for products aimed at major demand sectors. Not only the recovery of performance but also share buybacks and expectations for infrastructure expansion in key countries are positive factors for the stock price."